HIGHLIGHTS Significant acquisition activity: $84.3 million of property acquired, improving portfolio metrics and providing significant medium to long-term development potential Transition of the Penrose portfolio: approximately $14 million of shareholder value created equating to a property level internal rate of return of approximately 26% Strong balance sheet: $70 million rights offer, $100 million of senior secured fixed rate sevenyear bonds, gearing of 30.8% Dividend policy change and increased dividend for FY18: guidance of full year cash dividends of approximately 7.55 cents, approximately 95% to 100% of Adjusted Funds From Operations 1 Governance and management changes: David Thomson appointed to the Board as an Independent Director on 12 February 2018, internalisation of management on 30 June 2017 1. Adjusted Funds From Operations is non-gaap financial information and a common investor metric, which has been calculated in accordance with the guidelines issued by the Property Council of Australia. Please refer to slide 24 for further details. 4
PORTFOLIO SNAPSHOT PFI s portfolio is diversified across 92 properties and 148 tenants, with 99.9% occupancy and a weighted average lease term of 5.33 years, weighted towards Auckland industrial property 31 December 2017 31 December 2016 Book value $1,210.8m $1,083.3m Number of properties 92 83 Number of tenants 148 143 Contract rent $79.6m $72.5m Occupancy 99.9% 99.6% Weighted average lease term 5.33 years 4.79 years Auckland property 82.4% 85.3% Industrial property 86.4% 85.5% 6
HISTORICAL OPERATIONAL PERFORMANCE Jean - Tuesday Since 2008, PFI has achieved a year end average occupancy of 98.6% and WALT of 4.81 years 7
PORTFOLIO PERFORMANCE Valuations: $43.6 million or 3.7% portfolio revaluation uplift to $1,210.8 million Passing yield firmed from 6.69% to 6.57% Leasing: 27 leases agreed over ~97,000 sqm of space for an average term of 5.5 years Lease renewals accounted for approximately half of the contract rent secured 73 rent reviews, average annual uplift of ~2.5% on ~$38.6 million of contract rent Tenant Address Term Area % Rent Roll Ballance Agri-Nutrient 124a Hewletts Road, Mt Maunganui 2.1 years 11,765 sqm 1.3% Massey University 229 Dairy Flat Highway, North Shore 8.0 years 4,429 sqm 1.2% Hewlett-Packard 2 Pacific Rise, Mt Wellington 1.7 years 2,799 sqm 1.2% Shed 22 Hospo Shed 22, 23 Cable Street, Wellington 15.0 years 2,816 sqm 1.0% Mainfreight Air & Ocean 212 Cavendish Drive, Manukau 6.0 years 9,225 sqm 0.9% MOTAT 10 Autumn Place, Penrose 9.0 years 7,646 sqm 0.8% 21 other transactions, all for leases with contract rent of <$0.65m 5.2 years 58,170 sqm 7.8% 27 leasing transactions Various 5.5 years 96,850 sqm 14.2% 8
LEASE EVENTS Near term leasing outlook remains positive: just 7.4% of contract rent is due to expire during 2018 Expiries at Carlaw Park, Parnell represent 3.2%, leasing of that space is a key priority in 2018 ~68% of portfolio subject to some form of lease event during 2018 Tenant % Rent Roll Carlaw Park Office Complex Nestle 1.8% 8 McCormack Place Information Management 1.1% 10c Stonedon Drive Chemical Freight Services 1.0% Carlaw Park Office Complex Argosy 0.8% 41 William Pickering Drive So-Pac Marine 0.1% Other Various 2.6% Total 7.4% 9
PENROSE PORTFOLIO Portfolio of five Penrose properties purchased in August 2015 All five properties have been transitioned: four from former tenant Sistema to new tenants, one sold for a gain on sale of $1.9 million ~$14 million of shareholder value has been created Property level internal rate of return of ~26% 10
ACQUISITIONS During 2017 PFI secured ten quality properties for a total acquisition cost of $84.3 million The acquisitions: Established PFI s presence in additional centres across New Zealand, whilst maintaining a high weighting towards the attractive Auckland property market Improved a number of PFI s portfolio metrics Were purchased with attractive lease terms, with a high proportion of the assets benefiting from fixed rent reviews, providing future rental growth Have low site coverage providing for significant medium to long-term development potential Established a strategic partnership with a quality nationwide tenant, the TIL Logistics Group 11
DIVESTMENTS AND DEVELOPMENT 65 Hugo Johnston Drive, Penrose sold during H1 2017 to an owner occupier for $14.3 million, with a $1.9 million gain on sale representing a 17.8% premium above the December 2016 book value ~$32.3 million of divestments over the last three years Tenant commitment continues to be sought for the Company s new 2,500 sqm warehouse to be built on surplus land at 212 Cavendish Drive, Manukau ~$29.5 million of developments over the last three years 12
MARKET UPDATE ANZ retain a broadly positive medium-term expectation: Forecast annual growth of up towards 3% by the end of 2018, and averaging 2½-3% over the next couple of years overall Equates to the average rate of growth experienced since 2010 CBRE December 2017 Auckland Market Outlook for industrial property: structural economic changes [are] supporting demand and the supply outlook [is] remaining fairly well balanced relative to our absorption forecasts. Secondary industrial continues as the market with the best return outlook, largely driven by favourable supply and demand conditions underpinning relatively good rent growth Prime industrial ranks seventh out of 12 property classes in their returns forecasts Secondary industrial forecast five year returns total 11.9% per annum (income 6.5%, capital 5.4%) Prime industrial forecast five year returns total 8.8% per annum (income 5.6%, capital 3.2%) 14
STRATEGY PFI has always invested in quality industrial property in prime locations, in order to deliver attractive returns with a low level of volatility: our average annual return to shareholders since inception has been ~9.7% 1 We aim to drive shareholder returns by: Active asset management Development Divestments Acquisitions In 2017: Internalisation and retention of existing team ensured continuity of strategy Capital management initiatives ensured that the Company maintained a strong balance sheet PFI has ended the year with significant capacity to opportunistically pursue both core and value-add industrial acquisitions 1. Cash dividends plus change in share price, assuming dividends are invested. Source: DataStream. 15
EQUITY AND DEBT INITIATIVES Equity: ~$70 million raised via October/November 2017 one-for-ten rights offer, high level of take-up by existing shareholders: almost 80% of the new shares available Debt: inaugural bond offer in November 2017, $100 million of senior secured fixed rate seven-year bonds, rate of 4.59% per annum equating to a margin of 1.65% Debt facility maturity profile ($m) 17
FUNDING, COVENANTS, INTEREST RATES Bond helps to diversify PFI s borrowings and to increase the average term to expiry of all facilities to 3.7 years as at the end of 2017 Gearing of 30.8% and interest cover ratio of 3.7 times well within bank covenants Dec 2017 Dec 2016 Funding Syndicated Bank Facility drawn (excluding overdraft) $272.7m $333.7m Syndicated Bank Facilities limit $375.0m $375.0m Syndicated Bank Facilities headroom $102.3m $41.3m Fixed Rate Bonds $100.0m - Funding term (average) 3.7 years 3.8 years Syndicated Bank Facilities banks ANZ, BNZ, CBA, Westpac ANZ, BNZ, CBA, Westpac Covenants Gearing 30.8% 30.1% Interest cover ratio 3.7 times 3.4 times Interest rates Weighted average cost of debt (including margin and fees) 4.96% 5.24% Fixed rate payer interest rate hedging (excl. forward starting hedging, $m / rate / duration) $220m / 4.37% / 2.6 years $243m / 4.53% / 3.0 years Fixed rate payer interest rate hedging (forward starting hedging, $m / rate / duration) $155m / 3.55% / 3.0 years $70m / 3.54% / 2.9 years 18
FIXED RATE PAYER HEDGING Weighted average cost of debt decreased from 5.24% at end FY16 to 4.96% at end FY17 Cover profile provides for an average of ~59% of debt to be hedged at an average fixed rate of ~4.28% in FY18 19
OPERATING REVENUE Operating revenues of $73.5 million up $2.4 million or 3.4% Increases due to positive leasing activity ($1.9 million), acquisitions ($1.7 million) and completed developments ($0.8 million), Decreases due to increased intra-period vacancy ($1.2 million) and disposals ($0.8 million) Transition of the portfolio of five Penrose properties from prior tenant Sistema to new tenants contributed ~$0.8 million to the increase in vacancy (refer slide 10) 21
COMPREHENSIVE INCOME For the year ended (audited, $000) Dec 17 Dec 16 Change Total operating revenue 73,528 71,108 2,420 Non-recoverable property costs (2,357) (1,646) (711) Interest expense and bank fees (17,768) (17,839) 71 Management fees (2,919) (7,259) 4,340 Other expenses (2,891) (1,230) (1,661) Total operating expenses (25,935) (27,974) (2,039) Total operating earnings 47,593 43,134 4,459 Fair value gain on investment properties 43,595 88,214 (44,619) Gain on disposal of investment properties 1,949 302 1,647 Material damage insurance income 504-504 Fair value (loss) / gain on derivative financial instruments (1,230) 433 (1,663) Termination of management agreement (42,869) - (42,869) Total non-operating income and expenses 1,949 88,949 (87,000) Profit before taxation 49,542 132,083 (82,541) Current taxation - (8,535) 8,535 Deferred taxation 2,142 (136) 2,278 Total income tax benefit / (expense) 2,142 (8,671) 10,813 Profit after income tax 51,684 123,412 (71,728) Operating revenues up $2.4 million or 3.4%, refer slide 21: operating revenue Operating expenses down $2.0 million or 7.3%, due to management fees (down $4.3 million) partially offset by $1.6 million increase in administrative expenses incurred from July to December 2017 in lieu of management fees Higher non-recoverable property costs ($0.7 million) due to increased vacancy and asbestos testing programme Excl. the impact of the internalisation payment, net of tax, profit after tax of $82.6 million or 17.96 cents per share (refer Appendix 1) 22
DISTRIBUTABLE PROFIT (CENTS PER SHARE, CPS) Distributable profit per share up 0.50 cps or 6.6% Internalisation cost savings in H2 2017: Estimated at ~$2.7 million (0.59 cps) before interest and tax, or $1.4 million (0.30 cps) after interest and tax Represent a contribution of 7.1% to the H2 2017 increase in distributable profit, ahead of the 6% estimated by Northington Partners in their Independent Appraisal Report 1. Distributable profit is non-gaap financial information used by the PFI Board to assist in determining dividends to shareholders. Refer: Note 4.1 of Financial Statements. 23
FFO, AFFO AND DIVIDENDS (Unaudited, $000, unless noted) Dec 2017 Dec 2016 Profit and total comprehensive income after income tax attributable to the shareholders of the Company Adjusted for: 51,684 123,412 Fair value gain on investment properties (43,595) (88,214) Material damage insurance income (504) - Gain on disposal of investment properties (1,949) (302) Fair value loss / (gain) on derivative financial instruments 1,230 (433) Amortisation of tenant incentives 2,287 1,973 Straight lining of fixed rental increases (490) (607) Deferred taxation (2,142) 136 Termination of management agreement 42,869 - Current taxation without deductibility of termination of management agreement (10,010) - Funds from operations (FFO) 39,380 35,965 FFO per share (cents) 8.57 7.99 FFO dividend pay-out ratio 87% 92% Maintenance capex (2,641) (2,962) Incentives and leasing fees given for the period (2,316) (1,729) Other (12) (12) Adjusted funds from operations (AFFO) 34,411 31,262 AFFO per share (cents) 7.49 6.95 AFFO dividend pay-out ratio 99% 106% Funds From Operations (FFO) earnings up 0.58 cps, Adjusted Funds From Operations (AFFO), earnings up 0.54 cps FY17 cash dividends total 7.45 cps Change in dividend policy: from FY18, dividend policy will be based on 80-90% of FFO and 95-100% of AFFO New policy means that dividend payments will reflect cashflow from sustainable rental activity alone FY18 cash dividend guidance: 7.55 cps, representing 95% to 100% of AFFO, assumes ~97% occupancy 1. FFO and AFFO are non-gaap financial information and are common investor metrics, which have been calculated in accordance with the guidelines issued by the Property Council of Australia. 24
INVESTMENT PROPERTIES Portfolio value of ~ $1.2 billion Significant acquisition activity: $84.3 million of property acquired, improving portfolio metrics and providing significant medium to long-term development potential Annual increase from independent valuations of $43.6 million or 3.7% 25
NET TANGIBLE ASSETS (CENTS PER SHARE, CPS) Jean Net tangible assets (NTA) per increased by 2.5 cps or 1.6% to 163.2 cps Excluding the impact of the internalisation payment, net of tax, PFI s NTA would have increased by 8.7 cps or 5.4% to 169.4 cents (refer Appendix 1) 26
FIVE YEAR FINANCIAL SUMMARY ($m, unless noted) Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Operating revenue 48.1 63.8 66.9 71.1 73.5 Total operating earnings 26.9 36.9 36.6 43.1 47.6 Total comprehensive income after tax 40.5 59.9 72.8 123.4 82.6 1 Total assets 877.0 906.9 1,027.2 1,121.8 1,242.2 Total liabilities 341.8 341.9 369.2 365.7 399.2 Total equity 535.2 565.0 658.0 756.1 842.9 Banking covenants: Company gearing (threshold 50%) 37.4% 35.8% 33.3% 30.1% 30.8% Interest cover ratio 3.2x 3.0x 2.9x 3.4x 3.7x The last five years has seen strong growth in rents and values whilst keeping gearing at low levels and maintaining a high ratio of interest cover 1. Refer: Appendix 1: Total comprehensive income excluding internalisation 27
REVIEW & QUESTIONS PFI s strategy is to invest in quality industrial property in New Zealand s prime locations and the Company aims to deliver strong, stable shareholder returns 2017 highlights: Significant acquisition activity Transition of the Penrose portfolio Strong balance sheet Dividend policy change and increased dividend for FY18 Governance and management changes Questions? 29
APPENDIX 1: EPS & NTA EXCL. INTERNALISATION Some measures have been presented excluding the impact of internalisation payment, net of tax Adjusted earnings per share (unaudited, $000) Dec 2017 Dec 2016 Total comprehensive income attributable to the shareholders of the Company 51,684 123,412 Adjusted for internalisation: Termination of management agreement 42,869 - Tax benefit of termination of management agreement (12,003) - Adjusted total comprehensive income attributable to the shareholders of the Company 82,550 123,412 Weighted average number of ordinary shares (shares) 459,600,237 450,078,636 Adjusted basic and diluted earnings per share (cents) 17.96 27.42 Adjusted net tangible assets per share (unaudited, $000) Dec 2017 Dec 2016 Net tangible assets 813,857 727,052 Adjusted for internalisation: Termination of management agreement 42,869 - Tax benefit of termination of management agreement (12,003) - Adjusted net tangible assets 844,723 727,052 Closing shares on issue (shares) 498,723,330 452,458,592 Adjusted net tangible assets per share (cents) 169.4 160.7 31
DISCLAIMER The information included in this presentation is provided as at 12 February 2018 and should be read in conjunction with the NZX annual results announcement, NZX appendix 1 (including the financial statements) and NZX appendix 7 issued on that same day. Property for Industry Limited (PFI) does not guarantee the repayment of capital or the performance referred to in this presentation. Past performance is not a reliable indicator of future performance. The presentation includes a number of forward looking statements. Forward looking statements, by their nature, involve inherent risks and uncertainties. Many of those risks and uncertainties are matters which are beyond PFI s control and could cause actual results to differ from those predicted. Variations could either be materially positive or materially negative. While every care has been taken in the preparation of this presentation, PFI makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This presentation has been prepared for the purpose of providing general information, without taking account of any particular investor s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this presentation, and seek professional advice, having regard to the investor s objectives, financial situation and needs. This presentation is solely for the use of the party to whom it is provided. 32